The Miller Group Ltd - Final Results for the Year to 31 December 2009

The Miller Group, the UK’s largest, privately owned Housebuilding, Property Development and Construction business, today announces final results for the year to 31 December 2009

• Housing and commercial property markets past the worst
• Forward housing volumes considerably ahead of previous year providing a solid platform for 2010
• Record construction profits and industry-leading operating margins achieved
• Cash generation from our diversified and fundamentally strong group will allow early repayment of £100m of Group debt in first quarter of 2010

Financial Highlights

• Group turnover reduced as planned to £783m (2008: £1,046m)
• Group profit before interest and exceptional items of £13.1m, in line with last year
• Group loss before tax of £72.4m (2008: (£170m)
• Exceptional costs of £27.5m (2008: £136m)
• Cashflow from operations of £130m and £100m of scheduled debt amortisation to be repaid 9 months early
• Increased housing volumes with completions of 2,068 (2008: 2,056)
• Record construction profits of £15.5m (2008: £13.7m) and strong operating margins of 3.8% (2008: 2.2%)

Operational Highlights

• Encouraging activity levels in housing with forward sales of 1,010 units, 13% ahead of 2009
• 17 new housing developments opened since mid 2009
• Focus on delivering consented sites from 5,000 acre strategic land portfolio.  14,000 units progressing through planning expected to be acquired in the next 5 years.  1,000 units will be drawn down in 2010/11 at margins above industry norm
• Major participant in Homes and Communities Agency’s HomeBuy Direct and Kickstart programmes.  Received Kickstart Phase 1 funding of £12.4m and shortlisted to receive an additional £6.1m in Phase 2.  HomeBuy Direct funding secured for 1,035 units and shortlisted for an additional 274 units
• 87% (2008: 80%) of the commercial property portfolio income-yielding and generating a positive return over direct property and finance costs
• Healthy weighting of construction order book between public sector (80%) and private sector (20%)
• Agreed terms for £45m financing of Ffos-y-fran opencast coal and land reclamation project, with Credit Suisse and Caterpillar Financial Services

Keith Miller, Group Chief Executive, said:

'The early and decisive action we took to reorganise our finances and landbanks, and rationalise our cost base has stood us in good stead.   We have 33 sites in our strategic land portfolio which are progressing well through the planning process, and these are expected to produce approximately 14,000 plots in the next 5 years.  All will be acquired at superior margins, and the first 1,000 plots should be acquired in 2010 / 2011.

‘Our commercial property portfolio is in good shape, making a positive return over both direct operational and finance costs.  We have recommenced activity on our major strategic landholdings in Islington, Birmingham, Warrington and Edinburgh.

‘The construction market is challenging, but we have good visibility of work in the medium term, a strong brand and an excellent client base.

‘We have a lean business with a strong diversity of interests in the UK and Europe.  Consequently I am confident in our future prospects, as we see steady recovery in our markets.’

Sir Brian Stewart, Chairman, commented:

“Owning your own home is most people’s greatest aspiration. One of our primary objectives is to provide desirable housing at a fair price.  However, affordable homes require affordable financing and the latest figures show mortgage lending at a nine-month low, which is very disappointing.

The market needs more certainty, politically, economically and financially. It would be unfortunate if, having been through the worst recession in our lifetime, the financial sector failed to provide the products, the liquidity and the conditions for the market to move forward. 

We have come through a very turbulent environment and performed creditably.  While we expect 2010 to be challenging, with 50% of housing sales for 2010 already secured, a positively yielding property portfolio, a quality construction order book and experienced management teams, we are looking to the future with confidence.’

For further information:

Robert Ballantyne, Shan Shan Willenbrock, Cardew Group, 0207 930 0777
 

Business Highlights

Performance

The Miller Group (‘Miller Group’ or the ‘Group’) has performed well and in line with expectations against a backdrop of a difficult economic environment.  In the period under review, we have seen a slow but steady improvement in the housing market reflected by more positive performance indicators.  The construction business produced record profits and this can be attributed to our strategy of focusing on the quality not quantity of the projects the Group chooses to undertake.  Group turnover, as anticipated, reduced from £1,046m to £783m primarily as a result of the reduction in number of construction projects the Group has taken on in order to focus on profitability. Group loss before tax of £72.4m includes £27.5m of exceptional items.  The majority of these relate to our overseas commercial properties, and in particular those in Eastern and Central Europe, where we have experienced increasing demands from tenants seeking rent concessions.  

Cash generation was particularly strong with £130m cash generated from operations, which will allow the early repayment of £100m scheduled bank amortisation in the first quarter of 2010.  In March 2010 we have agreed terms to refinance Ffos-y-fran, our opencast coal and land reclamation project, with £45m of funding coming from Credit Suisse and Caterpillar Financial Services.

Housing

The housing market improved steadily during 2009.  Reservations per site per week averaged 0.45 (2008: 0.2) and cancellation rates per week reduced to 15% (2008: 33%).  The first 10 weeks of 2010 have seen sales rates maintained at a similar level and cancellation rates improve further to 12%.  Housing volumes increased to 2,068 (2008:  2,056) at an average selling price of £160,000 (2008:  £164,000).  This increased volume was achieved despite operating from 12% fewer sites.

We have worked closely with the Homes and Communities Agency (“HCA”) throughout the year and are a major participant in HomeBuy Direct and Kickstart programmes.  We have received £12.4m of Gap funding under Kickstart Phase 1 and are shortlisted to receive an additional £6.1m in Phase 2.  In addition we have secured HomeBuy Direct for a total of 1,035 units and are shortlisted for an additional 274 units in Kickstart Phase 2.  In total the HCA support will assist in the delivery of more than 1,700 units in the period 2009 to 2012.

The improving market has given us confidence to open up 17 new housing developments since mid 2009 and we are assessing the potential to start a number of additional sites.

Considerable time and resource has been invested in accelerating our strategic land portfolio. There are 14,000 units progressing through the planning process which we expect to convert into production over a 5 year period.  Around 1,000 units will be drawn down over the next 12 months.  These all generate margins above industry norms and will restore this business to profitability in the medium term.

We are committed to the provision of high standards of customer care.  98% of respondents to independent surveys would recommend Miller Homes.  This commitment to quality was recently recognised with a Silver Award from ‘What House’ magazine in the Major Housebuilder category.

Property

Despite another challenging year, Miller Developments, the Group’s commercial property arm, has made a pre-exceptional operating profit of £13.1m – a creditable performance.  Asset write-downs totaling £20.1m were taken principally in relation to our overseas projects, reflecting much weaker property and retail markets than in the UK with increasing demands for rental concessions.  However, this strategy has been successful with occupancy rates over 90%.

87% of our portfolio is income-yielding with a broad tenant base in the UK and Europe.  Lettings in the year included Tesco, Speedo International, Aker Business Services and Business Stream.  The balance of the portfolio represents long term land holdings in Edinburgh, Warrington, Birmingham and Islington.  We have recommenced activity on these sites.  These will produce up to 11m sq ft and will be developed out over the next 10 years.

The current portfolio comprises over 50 projects with a completed development coverage of 16m sq ft.  We remain active across all sectors of the market, from leisure and retail to offices and mixed use. 

Construction

The business produced an excellent financial performance in very challenging market conditions.  Although turnover of £409m was down 34% from 2008, it was still our second highest ever.  More importantly, we produced record operating profits of £15.5m (2008:  £13.7m).  This was down to procuring projects on the right commercial terms and driving contracts ahead of programme.  The business places a lot of emphasis on planning and forecasting.  This, and the focus on quality rather than quantity of turnover, delivered an industry-leading operating profit margin of 3.8%.

We have a flexible business model.  Currently our mix of work is leaning towards the public sector with the order book split 80 / 20 public / private.  The average contract size was £18m.

Our strategy is to maintain our lean business model whilst aggressively pursuing new long term framework alliances and niche lines of business in health, education, defence and the public utilities.

Health and safety is the number one priority for all of our staff and partners.  We achieved a record performance in terms of health and safety, beating our Accident Incident Rate target by 40%.  To recognise this we received seven awards under the Considerate Constructors Scheme including gold awards for Union Square Aberdeen, Malinslee Primary School Telford and The Centre, Livingston.

It is our aim to exceed our clients’ expectations on every project thereby building strong relationships and ensuring repeat business.  During the year, we successfully completed the handover of the 1m gross sq ft Union Square shopping centre in Aberdeen for Hammerson, on time and on budget.  At £120m, this was the largest single project we have completed to date. 

Mining

The Ffos-y-fran Land Reclamation Scheme reached a major milestone with its one millionth tonne of coal being extracted during the year.  The 1,000 acre project is reclaiming contaminated and unstable land, whilst at the same time producing over 11m tonnes of coal reserves using open cast methods.  It is being carried out in joint venture with Argent Group plc and is expected to last 17 years.

In March 2010 we agreed a £45m five year bank facility which will allow a significant equity release to the partners.

Outlook

The performance of any business reflects the economic environment.  Miller Group, like many other housing, property and construction companies, has not been immune to the prolonged and steep economic  downturn of the past 18 months.  To this end, the management has had to ensure our business is structured and rationalised to reflect the economic and financial markets. 

However we have successfully demonstrated that we have been through the worst; and have taken the necessary actions to position us well to take advantage of the expected upturn. The early signs are promising and there is clear evidence that customer confidence is returning.  In the UK, only 88,100 homes were built in 2009 versus a demand for 220,000 new homes (source: National House-Building Council.  Miller Group is in a strong position to support government policies to bridge the significant gap between supply and demand. 

Though we are aware of current weaknesses in mortgage supply and the drag on demand that further increases in unemployment could bring, we have already secured 50% of our Housing targets for the year.  This positive start has been mirrored in the Property business with the sale in January of our 60,000 sq ft Grade A office development at Edinburgh Quay for £21.5m.

Both asset businesses are well placed to benefit as markets improve, with a lean overhead and tightly controlled landbanks and portfolios.

Construction is further behind the recovery curve with more challenging market conditions.  However we have good visibility of work for 2010, a strong client base and the majority of our order book with the public sector.

The diversity of our business model has been a major strength in these turbulent times.  This, and our experienced management team, provides confidence in the Group’s future prospects.